Jensen's alpha
Financial calculation / From Wikipedia, the free encyclopedia
Dear Wikiwand AI, let's keep it short by simply answering these key questions:
Can you list the top facts and stats about Jensen's alpha?
Summarize this article for a 10 year old
SHOW ALL QUESTIONS
In finance, Jensen's alpha[1] (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return. It is a version of the standard alpha based on a theoretical performance instead of a market index.
The security could be any asset, such as stocks, bonds, or derivatives. The theoretical return is predicted by a market model, most commonly the capital asset pricing model (CAPM). The market model uses statistical methods to predict the appropriate risk-adjusted return of an asset. The CAPM for instance uses beta as a multiplier.